Markets and Democracy

Let's talk about this
idea that at one level is so simple and so obvious that nobody had put it
all together with the sweep of both history and geography that you have done.
What do you mean by an "ethnic-dominant minority"? We touched a
little on this already. But once you have that concept, help us understand
what it is and how it was shaped in your own mind.

The concept I used in the book -- it's a bit of
a mouthful -- is a market-dominant minority. By this term I mean an ethnic
minority, or ethnic minorities, who, along with foreign investors, can be
expected to economically dominate the poor, indigenous majorities around them,
at least in the near to mid-term future. I'm not talking about ethnic stereotypes
-- in the United States, we worry a lot about ethnic stereotypes. I'm talking
about something more serious, because I'm talking about actual, starkly disproportionate
control of the economy by an ethnic group.

So, first of all, it's not just the Chinese; although
the Chinese are publicly the most well-known market-dominant minority. The
Chinese are 3 percent of the population in Indonesia, a larger population
in Malaysia; they're about 10 percent of the population in Thailand. But they
are extremely economically dominant throughout Southeast Asia.

Other examples include Indians throughout the countries
of East Africa -- Kenya, Tanzania, Uganda. The Lebanese in the countries of
West Africa, exactly the same position, very small in numbers, 1 percent,
2 percent, and yet they control such a disproportionate amount of the corporate
and commercial sector. Other examples are Whites in Zimbabwe, Whites in South
Africa, Whites in countries like Bolivia, Ecuador, Guatemala. Although, again,
in a more complicated sense in Latin America. Less well-known examples of
African groups (the Ibo in Nigeria, the Kikuyu in Kenya), the Croatians in
the former Yugoslavia, Jews in post-communist Russia. All of these groups
came under free-market policies, the kind that we were pushing in the nineties
and eighties, to dominate the economies in which they live to a startling
extent.

The thesis is, very simply, that most non-Western
countries have social and ethnic structures totally different from what we
have in the West. In particular, in the numerous non-Western countries that
have a market-dominant ethnic minority, markets and democracy basically benefit
not just different people or different classes, but different ethnic groups,
creating an explosive situation that we just aren't familiar with here. Markets
will tend to leave to the economic dominance of this small ethnic minority,
whether it's the Indians in Kenya or the Chinese in Indonesia.

At the same time, overnight democracy will empower
the poor, indigenous majority. What happens is that under those circumstances,
democracy doesn't do what we expect it to do -- that is, reinforce markets.
[Instead,] democracy leads to the emergence of manipulative politicians and
demagogues who find that the best way to get votes is by scapegoating the
minorities. They say, "The reason we're all poor here in Indonesia is
because the Chinese are stealing all the wealth, so let's have Indonesia for
Indonesians," or Serbia for Serbs, or Zimbabwe for Zimbabweans. "Let's
take back the economy." So in this case, markets and democracy are not
mutually reinforcing. Markets benefit one ethnic group, democracy empowers
a different ethnic majority, and the result is a lot of instability.

In a moment we'll talk
about how this goes against the conventional wisdom of American power in the
world, or as some are now calling it, the American empire. But before we do
that, I want to get from you a better sense of why these particular groups
tend to benefit most. What you're suggesting is they were positioned before
globalization hit in a powerful way of the nineties. There are different reasons,
different explanations for that, right?

That's the most important part of it, that there
are different reasons for the market dominance of different groups. This is
why I think these topics shouldn't be taboo. Often, it seems it's so difficult
to talk about ethnic minorities who disproportionately do well economically.
But the reason it shouldn't be taboo is because by market dominance, I'm not
talking about any kind of inherent, biological superiority.

So, there are different answers. Some groups achieve
market dominance because of colonial oppression or apartheid. So, for example,
Whites in South Africa: if a small minority, like the Whites in South Africa,
Zimbabwe, and Namibia, uses military power in a police state to relegate the
majority to inferior education and apartheid conditions for a hundred years,
then that minority is going to be a market-dominant minority. When foreign
investors come, they're going to want to work with this minority that has
all the capital. It has all the experience, the education. But that's not
necessarily because of any entrepreneurialism. It's because of colonial policies,
or divide-and-conquer policies, so minorities become market-dominant for reasons
having nothing to do with entrepreneurialism.

The harder cases to explain are the non-colonizer
minorities like the Indians in East Africa, or the Lebanese in the Caribbean
or West Africa, the Jews in many parts of the world, and the Chinese in many
parts of the world. These are groups that often came to their new countries
with nothing. They were immigrants. The Indians, brought to East Africa to
work on the railroad, had nothing but a shirt on their back. And, yet, these
groups in one or two generations came to dominate even the professions, or
more, in particular, the private economy, the commercial sector -- retail,
wholesale, corporations.

I don't answer this question in my book. I think
it's a combination of reasons. I don't know if you want to call it culture/family
networks; I think the way networks in all these groups work is very striking.
It's clearly part of what explains their economic success.

One case that intrigued
me was the case of the oligarchs in post-communist Russia. In that case, six
of the seven oligarchs turn out to be Jewish. But in a way, it's a product
of their having been excluded before, under the communist system.

Absolutely.

Talk a little about that.

Well, that's one of the more controversial cases
to write about. There are so many invidious ethnic stereotypes, and so much
anti-Semitism, so it's a hard topic to discuss. You hear things like "Jews
controlling the United States economy." I actually researched that and
documented that that's false. The U.S. economy is not controlled by any ethnic
minority, whether it's the Koreans or the Jews. It's just not true, if you
look at the ten wealthiest Americans. Not so in the former Soviet Union. In
the anarchic shift to capitalism in the early nineties, which, by the way,
I think was ill-advised -- it was just a fast transition to cowboy capitalism;
there were no anti-monopoly laws, no anti-insider trading laws -- but the
result of that was that seven men, known as the oligarchs, came to control
roughly 60 percent of Russia's incredible natural resource wealth: oil, nickel,
the minerals.

I wasn't the first to document this. It came out
in The New York Times
magazine and
a book called Sale of the Century,
by Chrystia Freeland. But it was well known in the former
Soviet Union. Six out of these seven men were Jewish, or at least of Jewish
background. I did have a lot of research assistants who delved into this question
of why; they were all students from Russia, many of them Jewish. The explanations
are partly a result of exclusion. Many of these men, the oligarchs, wanted
to go into the Soviet Academy of Sciences, but were excluded because of anti-Semitic
reasons and ended up doing other things. Lots of them ended up being very
active in the black markets during the Soviet era. Now, black market sounds
negative, but, in fact, everybody loved the black markets during the communist
era. It was the only place that officials and others could get shoes and consumer
products. There were shortages everywhere. The black market during the Soviet
era was essentially the only capitalism there was.

In fact, all of the oligarchs had practice in a
private economy, in markets. Many of them translated those skills very successfully
when suddenly, with perestroika, there was market liberalization. Before everybody
even knew it was going on, they were privatizing, and it was a complicated
process. But for whatever reasons, these men came to the fore, bought up a
lot of the things that were for sale, got in touch with the foreign investors,
and came to control a disproportionate amount of the economy.

That case fits sadly, very neatly into my thesis
because you have this enormous transfer to markets -- not the kind of markets
I think we should be promoting -- leading to these seven men controlling 60
percent of the natural resources.

But what does democracy do? Sadly, [democracy]
and free speech led to the emergence of anti-Semitic political parties, politicians
that were openly campaigning on, "Let's expel the Jews. Let's take back
their property. The Jews are milking us dry." And that's a pattern that
we saw in Indonesia around the same time; it's very interesting. Free market
policies in the 1980s and 90s in Indonesia led to a situation where the country's
tiny 3 percent Chinese minority controlled an astounding 70 percent of the
private economy.

Democratization in 1998, which was hailed with
euphoria in the United States -- I still remember everybody was so excited
about democracy in Indonesia -- well, tragically, democracy produced a violent
backlash against both the Chinese and against markets. Politicians in Indonesia
fell over themselves campaigning on anti-Chinese platforms. You know, "Let's
take back the economy." And right now, the Indonesian government has
nationalized about $58 billion worth of ethnic Chinese assets. That's part
of the reason that country is in such an economic crises.

Before this democratization
occurs in many places, what you get is an alliance between the economically
dominant minority and the ruling autocrat. You used the common term "crony
capitalism."

Right. It's an interesting challenge: if you think
of the worst cases of crony capitalism, you'll be surprised to find that almost
every one involved a market-dominant ethnic minority. It's a very typical
pattern for an indigenous dictator, say, Ferdinand Marcos in the Philippines.
Ferdinand and Imelda were Filipinos, they were supposed to represent the majority,
but instead, they went into a crony capitalist situation with their country's
best entrepreneurs, who are Chinese. It was this little symbiotic relationship.
The Marcoses said, "We'll let you make money as long as you kick back
bribes and profit to us, and we won't have majority rule." That's what
Suharto did in Indonesia. He had a tiny handful of Chinese cronies, who made
a huge amount of money, and then kicked it back to him. That's what President
Daniel Arap Moi did in Kenya. He had a very authoritarian little regime propped
by a very small handful of Lebanese businessmen. The tragic thing about this
is, it's a bomb waiting to explode. In Indonesia, you have 3 percent of the
population in cahoots with this hated dictator, while the majority, the indigenous
Indonesians, are just enraged and so resentful, and they feel that they don't
have ownership of their country. These outsiders are milking it, and there's
this horrible dictator.

So when you politically liberalize, you say it's
democracy, [but] it's completely understandable, it's almost rational that
they would vent their anger. This is what happened in Indonesia. Politicians
speak for the people. They say, "It's time to take back our country."
The terrible thing is that it doesn't happen often in a gradual, stable way.
You know, "Let's vote in gradual redistributable policies." Instead:
"Let's loot the country. Let's take back the stores." That's exactly
what happened in 1998 -- 5,000 shops and homes of ethnic Chinese burned and
looted on the eve of democratization; 2,000 people died and 150 Chinese women
were gang-raped. The politicians started to campaign on anti-Chinese platforms.
And the Chinese in Indonesia, the wealthiest, left the country, taking with
them between $40- and $100 billion.

Again, that's the piece that the papers don't talk
about. [They ask], "Why is Indonesia such a breeding ground for terrorists
and extremist groups, and fundamentalist movements?" Well, partly, it's
because you have underemployment or unemployment of roughly 40 million people,
and that's because they're sitting on a kind of nationalized economy. And
it happens over and over.

So I'm glad you asked the question, my thesis is
not about blame. I'm not saying that ethnic conflict occurs because of free
markets, or because of democracy, or because of globalization. I'm a very
pro-globalization person, and I'm actually in favor or trying to bring markets
and democracy to other countries around the world. But we have been exporting
the wrong version of free market democracy. If I were to put the blame, I
think it's ... You mentioned the crony-capitalist situations create these
time bombs, so overnight democratization leads to this explosive venting.
I think we need to pay attention to how we democratize and how we bring markets.

Let's talk about that
in a minute and work that out. But one thing I want to ask you about, which
is that you've talked about a structure that's in place across the board all
over the world. Once democracy comes, political leaders, Milosevic or whoever,
have an incentive -- really an incentive structure -- in place to mobilize
the masses against this ethnic minority. We often want to look at these places
and say, "What they've got is evil people," and turn it into a theological
issue, as opposed to an issue of social and political analysis.

You're exactly right. I have no question in my
mind that some of them may also be evil. But you're right. Once you start
to see the pattern, you see that is a matter of incentives. Milosevic in the
former Yugoslavia, in Serbia: Americans don't like to admit this, but he came
to power in free and fair elections. He campaigned on an anti-Croatian, anti-everything-but-Serbia
platform -- "Serbia for Serbs." And the Serbs, in light of all their
history, which is very complex, voted for him. He won on a landslide victory.
Now, this is not just the Serbs. The Croatians did the same thing. They had
demagogues in Croatia, too. Tudjman campaigned on an anti-Serbian campaign.
With Kazakstanis, that political campaign's slogan was, "Kazaks stand
for the Kazaks." And in Rwanda, without suggesting that this is the only
thing (it's not just about economics at all), but after years of colonialism
and divide-and-conquer policies in Rwanda, the Tutsis were a 14 percent that
had always been favored by the colonizers, and they for years had dominated
the economy. Well, rapid political liberalization, which the West was pushing,
often with the best of intentions, led to the empowerment of the 80 percent
Hutu majority. And, sadly, that process led ... again, the democratization
was all about slogans for, "Let's take back the country. It's Hutu power
time. Let's get rid of these outsider Tutsis." It was not about economic
policies and building coalitions. It was all about excluding this hated minority
and taking back the country for the indigenous majority -- all very artificial.

You even point out in
your book that the argument was weighed not to close down the Hutu radio stations
because it was a matter of free speech. So what should be a functioning democracy
becomes something else in this context.

Right. It becomes contorted. And that's right --
in the West, we value our free speech. I'm one of the biggest proponents of
free speech. But in that circumstance, where you had ... again, if it's a
question of blame, you have to point it to, partly, the colonizers. Right?
The Belgians played divide-and-conquer. They favored the Tutsis. They were
the overseers for the 80 percent Hutus.

So you have all these terrible historical dynamics
all bottled up. And then suddenly it's, "We want to bring democracy and
elections, and free speech." And yes, the radio stations were used by
the Hutu power groups. They used the radio stations to say, "Kill your
neighbors. Kill the Tutsis." And, sadly, that genocide was majority supported.
A majority of the people in Rwanda were Hutus -- that's 80 percent of the
population. And as Philip Gourevitch wrote beautifully and tragically in his
book, "Neighbors killed neighbors. Doctors killed patients." It
just degenerated. And part of that was this sudden political liberalization
that the West promoted, with the best of intentions.